Consumer Down, But Not Out

Consumer Sentiment

We will be watching the retail sales number closely this week as the U.S. consumer is showing weakness. The weakness in the consumer matters because consumer spending makes up 69% of our economy. Consumer confidence expectations is a leading economic indicator. Last week, we saw a notable dip in U.S. consumer sentiment for the month of May. The measure of consumer sentiment has declined to 59.1. This represents a 10-year low and a 28% fall from a year ago. We are still seeing inflation as being a big problem for the consumer. This concern leaves a narrow path for the Fed to raise rates without too much economic pain because losing the U.S consumer could make it hard to avoid a downturn in the overall economy. However, it’s not all bad news. Job openings to unemployed workers ratio is at a record high which is great. There are, on average, 2 job openings for every 1 person looking which is an indication of labor market strength. We will be keeping an eye on consumer reports, specifically retail sales this week.

Corporate Earnings

If you look at corporate America and their revenues it shows that the consumer is still spending. Revenues in the first quarter were up nearly 14% and earnings were up 11%. This is potentially why we are seeing more job openings and hiring occurring. So, while consumer sentiment appears to be negative it’s still not appearing to be reflected on the balance sheet of certain companies. When you are an investor and seeing earnings growth that is typically the core base of a growing market. On the other side of corporate earnings, show that if companies are making money that they must be paying taxes. April was a record month for the Federal Government. The Federal Government brought in $864 billion in the month of April beating the previous record of $560 billion. So, we are seeing that record deficit we saw during Covid coming crashing down. The deficit is shrinking. The percentage of GDP in Federal tax receipts is nearing a record high a little north of 19%. The Federal Government’s balance sheet is looking strong. Why does this help the investor? As of right now, the Federal Reserve is reducing their bond purchases leading to pure supply and demand. If the Fed is no longer buying treasuries, then who will? Well, it’s not that big of a problem if government is issuing treasuries. With a record tax receipt that reduces the amount of treasuries and debt the government has to issue can possibly be a benefit to the market. This could be a good time for the Fed to step away from providing record stimulus to support what was a record deficit. So, the shrinking of the Federal deficit should be deflationary and something we certainly want to keep an eye on.

Technical Analysis

We saw a lot of turbulence in the markets last week ultimately leading to a Friday trading day in which all 11 sectors were up over 1% and an S&P close of 4,023. This gives us a new resistance of 4,060 and a new support level of 3,990. In the last few vlogs we have discussed the intermediate to longer term outlook reaching out to the end of the year. The 50-day S&P moving day average is currently at 4,331. This will be an important number to focus on as we get out to the end of the year in that this could potentially become a new resistance level.

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here

Adam Vansant, AIF®, BFA
Vice President
Wealth Consultant
Email Adam Vansant here

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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